Oct 17, 2012 07:55 PM IST | Source: CNBC-TV18

Mkt turns soft; pvt-bank asset quality to rise: Experts

Sudarshan Sukhani, explains to CNBC-TV18 that the market technicals in the near-term are weakening as indicated by gradual move towards the lower end of the trading band while Meanwhile Anand Tandon, CEO, JRG Securities explains that he expects the asset quality of private banks to improve

Sudarshan Sukhani, explains to CNBC-TV18 that the market technicals in the near-term are weakening as indicated by gradual move towards the lower end of the trading band that the market has been holding on to. He maintains that he observed the trend ever since the market ran short from last week.

"On Tuesday, we took a long position which we quickly exited. The market has begun to sense that a correction is underway and a trading or distribution range is emerging which could eventually break on the downside. The market, intraday, has gone below the 5,640-level and the short position is justified," concludes Sukhani.

Meanwhile Anand Tandon, CEO, JRG Securities explains that the market has entered a phase of correction after posting a good run in September. Tandon adds that he expects the asset quality of private banks to improve.

Below is an edited transcript of the Anand Tandon's analysis on CNBC-TV18.

Q: The market has scaled down quite a bit from 5,800-levels that it had earlier reached to range around the 5,650-mark. Is the market breaking down? Is there a correction in store?

A: The market had a great run in September has tapered off into the current correction phase. But I still maintain the view that six months from now the markets will be higher than current levels. But I doubt it will rise significantly in this calendar year.

Q: How would you approach HCL Tech after the announcement of results? What performance do you hope to see on the stock?

A: The company's results are an outlier in the IT sector where results have been fairly middling at best for most of the companies. Except for HCL Tech neither the small nor the large IT companies have reported great results.

I am a great believer in reversion-to-mean, so that makes me a little more circumspect. But if you go by the management’s confidence you should continue to hold on to the share as there is no particular reason to exit.

Q: RIL corrected close to about 2 percent after announcing results which were in line with street expectations? What is the call on RIL at Rs 800?

A: If you cannot just go by the financials in this particular case because there are some issues related to gas which are not very clear. There are two views - One, RIL is waiting for a better price and two, that there is actually less gas than previously thought. Therefore it is difficult to make a full economic estimate of what the full value would be.

But my analysis is that it is difficult for so many stakeholders to have got it wrong so far, especially with the kind of investment that has gone into gas-wells. Therefore I would argue that on a longer-term basis upwards of one year at least, RIL is a stock which would definitely be good to hold.

But given its position in the market, it cannot do anything more than the market. So if the market is weak, RIL will also be somewhat weak and the market will probably have to become much stronger for RIL to go up. Alternately, fresh information has to be garnered on the levels of gas that are available for the stock to move on its own without necessary support from the market.


Q: What kind of portfolio-changes are investors initiating? Are investors still sticking to some of those expensive defensives or has the time come to lap up some of these cyclical infrastructure, capital goods stocks?

A: I do not think anybody is looking at a portfolio level any more, if the market becomes essentially a traders' market. Investors are happy to go home even with a 10 percent move because they do not know how the market scenario will change in the next week or so.

So I do not see investors sitting on their portfolios. Though it’s not a buy-and-hold market, there will always be bias in the portfolio towards some sectors because money in the portfolio will not be evenly distributed at any point of time and therefore the biases are always towards being overweight perhaps on banking and positions in the defensives.

But that maybe because investors do not feel the urgency to get out of it in a hurry rather than being a conscious portfolio choice. Institutional investors have their work cut out for then because they cannot short very easily. On the retail side, a lot of investors are trading in both sides of the market now.

Q: How would asset quality pan out for banks per se?

A: I think all private sector banks will report better asset quality and all public sector banks will report poorer asset quality than expected.

Q: The telecom commission has recommended 100-percent spectrum refarming of 900 MHz. Will this be approved by the EGoM and what kind of an impact would it have on telecom operators?

A: It's difficult to see how the ministry or the EGoM will actually recommend this for the simple reason that there is lot of pressure on both sides. On one hand, industry doesn’t want to pay anything extra while on the other hand, there have been repeated objections from the CAG and the many other issues that are been haunting this government.

If you start paying large amounts of money for spectrum which you are already using it will increase the fixed cost and overall that will affect the pricing that the consumers will have to bear. So, it’s not necessarily a great positive for the industry if they have to end up paying more.

On the other hand whatever the government collects in the form of fees is going to be spent on some kind of a new program or perhaps a raise in government employee-salaries and so on so any way it is not going to reduce the deficit. So I would imagine that the best thing would be not to charge.

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